Homebuying is tough in the U.S. — Canada can relate 

The state of the Canadian real estate market will sound familiar to agents in America: There are plenty of interested buyers, but they're encountering elevated interest rates and low, low inventory.

Royal LePage recently released its House Price Survey for the first quarter of 2023, noting that home prices rose 2.8% compared to last quarter but are down a substantial 9.2% year-over-year. By comparison, U.S. home prices were down 3.3% year-over-year in March, according to Redfin.

One potential reason for the small rebound in Canadian home prices is that The Bank of Canada decided to pause interest rate hikes, according to the report.

That pause comes after a year of significant price corrections, said Phil Soper, president and CEO of Royal LePage. The current market adjustment is lasting even longer than the correction seen during the financial crisis around 2010, which affected global real estate markets including Canada, though the U.S. market was hit much harder.

"We have turned the corner, and the housing economy is growing again; none too soon for many buyers, who have been waiting patiently for prices to bottom out," Soper said. "Sanity is slowly returning to the housing market."

With the market appearing to get back on track, albeit with low inventory, Royal LePage is forecasting home prices at the end of 2023 will be 4.5% higher than at the end of 2022. That's an upward revision from a previous forecast because the boost in activity is happening earlier than expected.

Although Soper said he doesn't expect significant price growth in 2023, he thinks there is reason to be hopeful. "As market activity is rebounding quicker than anticipated, we are looking ahead with a sense of cautious optimism," he said.

One challenge the Canadian real estate market doesn't have to contend with is sellers who are reluctant to give up their ultra-low interest rates — an issue that is constraining inventory in the U.S.

That's because Canada has different rules when it comes to financing a home: A seller in Canada can take their current loan and keep the interest rate when they buy a new home. However, most Canadian mortgages are 25-year loans that are refinanced every five years at the current interest rate, so homeowners don't benefit from a 30-year locked-in low rate.

Sellers are putting homes on the market, but not enough to overcome low inventory

Even though sellers are more willing to list, inventory remains very low, and that probably won't improve much this year. Karen Yolevski, chief operating officer of Royal LePage Real Estate Services Ltd., said inventory is lowest in large metro areas like Toronto and Vancouver. The country is also experiencing high levels of immigration, which is good from an economic standpoint but also puts pressure on the housing market. 

Yolevski said governments on the local and federal level are working on solutions to increase inventory, but it will take some time. Meanwhile, home prices in Canada are generally higher than in the U.S., making affordability challenging not just for first-time buyers, but for renters as well.

"Getting on the property ladder is the most challenging component," Yolevski said, adding that it has made Canada very focused on improving supply levels.

High prices have resulted in another trend that U.S. real estate agents are familiar with: As more people have shifted to working remotely, buyers are looking at less expensive areas, including the Maritime provinces.

"If you can work fully remote, you can choose from a more affordable city or town in Canada," Yolevski said.